Monday, August 06, 2018

Deal price, less synergies, best evidence of share value in fair merger process

In an appraisal action resulting from a 2016 acquisition, the Delaware Chancery Court found that that the fair value of the petitioners’ shares is the deal price with a deduction for merger synergies—$53.95 per share. According to the court, the sale was completed in an open process characterized by objective indications of reliability, including many opportunities for potential buyers to bid and the work of a special committee in structuring and completing the deal. Evidence also demonstrates that the market for the stock was efficient and well-functioning, the court stated (In re Appraisal of Solera Holdings, Inc., July 30, 2018, Bouchard, A.).

Merger process. In 2015, the chairman and CEO of Solera Holdings, a provider of data and software for automotive, home ownership, and digital identity management, began to explore means by which to access financing, including a potential sale. After the executive’s efforts in testing of the waters, the Solera board formed a special committee, which determined to solicit bids from potential buyers. After a two-month outreach period and a six-week auction, Solera’s board ultimately accepted an offer from Vista Equity Partners for $55.85 per share (approximately $3.85 billion in total equity value), judged by advisors as fair from a financial point of view. Following a go-shop period, the merger closed, and Solera’s stockholders voted to approve the merger.

Seven funds that were Solera stockholders filed a petition for appraisal of their shares. Relying on a discounted cash flow analysis, the petitioners argued that fair value is $84.65 per share, and, following a recent appraisal determination in a separate matter, Solera contended that “unaffected market price” of a company’s stock should determine fair value—that is, $36.39 per share.

Deal price less synergies is fair. The court noted that, under the appraisal statute, “the stockholder is entitled to be paid for that which has been taken from him” and that courts have used different approaches to determine fair value, including comparable transaction analyses, discounted cash flow models, and final merger price. However, many decisions have found that the deal price is “the best evidence of fair value” when the sale process presents “objective indicia of reliability,” the court explained.

The Solera/Vista merger was the product of an open process conducted by an independent special committee with competent legal and financial advisors, according to the court. Many potential buyers had the opportunity to bid, the court stated, and the special committee played an active role in negotiating a fair, arm’s-length transaction, the court explained. The record also suggests that the sale process was conducted within an efficient and well-functioning market for Solera’s stock, according to the court. Declining to add merger fees to the deal price, the court found that “the deal price, minus synergies, is the best evidence of fair value and deserves dispositive weight” and stated that, as such, the petitioners are entitled to $53.95 per share as the fair value of their Solera shares of Solera, plus interest accrued since the close of the merger.